What happened
Shares of several banks and consumer-facing fintech companies got off to a good start today, largely due to positive earnings reports, but struggled to sustain momentum in the face of difficult economic conditions.
Shares of the artificial intelligence lender Upstart (UPST -7.89%) traded nearly 6% higher at 9:35 a.m. ET today, although it traded less than 1% higher at 10:53 a.m. Shares of Customers Bancorp (CUBI -4.90%) traded more than 9% higher at 9:35 a.m. but only about 4.5% higher at 10:53 a.m. Shares of the digital marketplace bank LendingClub (LC -3.58%) performed the best of the group, trading roughly 15% higher at 10:53 a.m.
So what
LendingClub reported earnings results for the first quarter of 2022 yesterday evening and generated a solid beat for the quarter. Diluted earnings per share of $0.39 and revenue of nearly $290 million came in well above expectations. The bank originated more than $3.2 billion of originations, the large majority of which are unsecured personal loans. Furthermore, credit quality remained benign, although management is preparing for a much harsher environment to come by tightening credit underwriting. LendingClub also raised its full-year guidance, boosting expected origination volume, revenue, and profits.
Image source: Getty Images.
Customers Bancorp, a $19 billion asset bank, also reported strong earnings results. The bank generated diluted earnings per share of $2.18 on total revenue of more than $186 million, beating analyst estimates. Customers continued to benefit from fee income generated from the massive amount of paycheck protection program (PPP) loans the bank originated earlier in the pandemic. The bank also continued to build out its recently launched blockchain payments platform, which added 74 customers during the quarter and has brought in roughly $2.3 billion in deposits as of April 15. Customers also has a personal loan portfolio, which reached nearly $1.9 billion in the quarter.
Although Upstart has been volatile today, it initially benefited from LendingClub's and Customers' earnings reports. Because both Upstart and LendingClub are market leaders in the personal loan space, LendingClub's origination volume can often be a somewhat decent indicator for Upstart, although there's more to it because Upstart originates loans to a wider variety of borrowers across the credit spectrum. LendingClub largely originates loans to prime borrowers.
Customers Bancorp is one of Upstart's main bank partners, so the fact that the bank grew its personal loans and maintained good credit quality on the portfolio is also a good sign for Upstart, although again Customers tends to stick to prime borrowers.
While stocks shot up to start the morning, the market cooled off later in the morning as investors continued to digest the uncertainty. This morning, the U.S. Commerce Department reported that gross domestic product (GDP) declined by 1.4% at an annualized pace, which is surprising considering how strong the economy was last year.
Now what
Stocks in general continue to struggle to gain any real momentum as investors continue to assess the impact from high inflation, the Federal Reserve's plan to hike interest rates and reduce its balance sheet, and Russia's ongoing invasion of Ukraine.
Consumer-facing fintech stocks in general face a lot of skepticism about how the consumer will hold up later this year and in 2023, especially if the economy tips into a recession. But right now, credit quality is strong, and hopefully, management teams are prudently preparing for what's to come.
Ultimately, I thought LendingClub and Customers' earnings reports came in very solidly. Both trade at attractive valuations, with LendingClub currently trading at about 11 times 2022 earnings and Customers trading at less than six times forward earnings.
